Question 1

One reason demand curves for individual products are downward sloping is because of the

Accepted Answer

A) wealth or real-balances effect. 
B) substitution effect. 
C) substitution-of-foreign-goods effect. 
D) constant-nominal-income effect. 
A) wealth or real-balances effect. 
B) substitution effect. 
C) substitution-of-foreign-goods effect. 
D) constant-nominal-income effect.

Question 2

Which of the following is likely to lead to a decrease in aggregate demand?

Accepted Answer

A) a decrease in interest rates 
B) an increase in income 
C) an increase in imports 
D) an increase in government spending on goods and services. 
A) a decrease in interest rates 
B) an increase in income 
C) an increase in imports 
D) an increase in government spending on goods and services.

Question 3

With short-run aggregate supply,

Accepted Answer

A) input prices are fixed or slower to change than output prices. 
B) output prices are fixed or slower to change than input prices. 
C) input prices are variable and change quickly. 
D) output prices are not a consideration. 
A) input prices are fixed or slower to change than output prices. 
B) output prices are fixed or slower to change than input prices. 
C) input prices are variable and change quickly. 
D) output prices are not a consideration.

Question 4

Which of the following phrases is most closely associated with investment demand?

Accepted Answer

A) It is the largest component of aggregate demand. 
B) It is the most volatile component of aggregate demand. 
C) It is largely determined by government fiscal policy. 
D) It includes intended purchases of goods and services. 
A) It is the largest component of aggregate demand. 
B) It is the most volatile component of aggregate demand. 
C) It is largely determined by government fiscal policy. 
D) It includes intended purchases of goods and services.

Question 5

In a case of demand-pull inflation,

Accepted Answer

A) prices rise. 
B) prices stabilize. 
C) prices fall. 
D) unemployment rises. 
A) prices rise. 
B) prices stabilize. 
C) prices fall. 
D) unemployment rises.

Question 6

A rise in aggregate demand causes which of the following?

Accepted Answer

A) a lowering of the level of output prices relative to input prices 
B) a cutback in production 
C) moderate layoffs 
D) an initial fall in inventories 
A) a lowering of the level of output prices relative to input prices 
B) a cutback in production 
C) moderate layoffs 
D) an initial fall in inventories

Question 7

Which of the following statements best characterizes the original tradeoff discovered by W. Phillips in 1957?

Accepted Answer

A) When the unemployment rate was very low, the rate of increase in employment was very high. 
B)  When the unemployment rate was very high, the rate of increase in overall prices was very high. 
C)  When the unemployment rate was very low, the rate of increase in wages was very high. 
D)  When the unemployment rate was very low, the rate of increase in wages was very low. 
A) When the unemployment rate was very low, the rate of increase in employment was very high. 
B)  When the unemployment rate was very high, the rate of increase in overall prices was very high. 
C)  When the unemployment rate was very low, the rate of increase in wages was very high. 
D)  When the unemployment rate was very low, the rate of increase in wages was very low.

Question 8

Which of the following is likely to lead to a decrease in aggregate demand?

Accepted Answer

A) an increase in interest rates 
B) an increase in wealth 
C) an increase in national income 
D) an increase in government spending on goods and services. 
A) an increase in interest rates 
B) an increase in wealth 
C) an increase in national income 
D) an increase in government spending on goods and services.

Question 9

The difference between nominal and real GDP is which of the following?

Accepted Answer

A) Real GDP has been adjusted for price changes. 
B) Nominal GDP refers to last year's GDP, whereas real GDP is for the current fiscal year. 
C) Real GDP is adjusted for depreciation whereas nominal GDP is not. 
D) Nominal GDP has been adjusted for price changes. 
A) Real GDP has been adjusted for price changes. 
B) Nominal GDP refers to last year's GDP, whereas real GDP is for the current fiscal year. 
C) Real GDP is adjusted for depreciation whereas nominal GDP is not. 
D) Nominal GDP has been adjusted for price changes.

Question 10

The two factors that make up nominal GDP are which of the following?

Accepted Answer

A) the monetary base and bank reserves 
B) the overall price level and real GDP 
C) bank loans plus the value of stock 
D) Both a and c are correct. 
A) the monetary base and bank reserves 
B) the overall price level and real GDP 
C) bank loans plus the value of stock 
D) Both a and c are correct.

Question 11

The Phillips Curve shows a tradeoff between

Accepted Answer

A) the rate of economic growth and the rate of inflation. 
B) the rate of inflation and the rate of unemployment. 
C) the rate of economic growth and the rate of unemployment. 
D) the rate of growth in the labor supply and the rate of growth in wages. 
A) the rate of economic growth and the rate of inflation. 
B) the rate of inflation and the rate of unemployment. 
C) the rate of economic growth and the rate of unemployment. 
D) the rate of growth in the labor supply and the rate of growth in wages.

Question 12

Which of these are excluded from the aggregate expenditures of the government sector?

Accepted Answer

A) salaries of defense personnel 
B) police cars 
C) social security payments 
D) computers bought by the defense department 
A) salaries of defense personnel 
B) police cars 
C) social security payments 
D) computers bought by the defense department

Question 13

An increase in aggregate demand will initially tend to lead firms to

Accepted Answer

A) increase production. 
B) decrease employment. 
C) cut prices. 
D) All of the above are correct. 
A) increase production. 
B) decrease employment. 
C) cut prices. 
D) All of the above are correct.

Question 14

A drop in aggregate demand causes which of the following?

Accepted Answer

A) output prices to fall relative to input prices 
B) a drop in unemployment 
C) substantial new hires 
D) an initial fall in inventories 
A) output prices to fall relative to input prices 
B) a drop in unemployment 
C) substantial new hires 
D) an initial fall in inventories

Question 15

Monetary and fiscal policy

Accepted Answer

A) are controlled by the Federal Reserve. 
B) are controlled by the U.S. Treasury. 
C) can and do cause fluctuations in aggregate demand. 
D) do not affect output. 
A) are controlled by the Federal Reserve. 
B) are controlled by the U.S. Treasury. 
C) can and do cause fluctuations in aggregate demand. 
D) do not affect output.

Question 16

Changes in the domestic price level cause consumers to purchase more of relatively cheaper foreign goods or less of relatively more expensive foreign goods. This effect is called which of the following?

Accepted Answer

A) the wealth effect 
B) the constant-nominal-income effect 
C) the substitution-of-foreign-goods effect 
D) the investment effect 
A) the wealth effect 
B) the constant-nominal-income effect 
C) the substitution-of-foreign-goods effect 
D) the investment effect

Question 17

Sustained increases in the overall price level due to high levels of aggregate demand are called which of the following?

Accepted Answer

A) booming aggregate demand 
B) demand-pull inflation 
C) cost-push inflation 
D) stagflation 
A) booming aggregate demand 
B) demand-pull inflation 
C) cost-push inflation 
D) stagflation

Question 18

Which of the following phrases best explains the slope of the long-run aggregate supply curve?

Accepted Answer

A) actual prices equal expected prices. 
B) expected prices are higher than actual prices. 
C) output prices increase faster than input prices. 
D) None of the above is correct. 
A) actual prices equal expected prices. 
B) expected prices are higher than actual prices. 
C) output prices increase faster than input prices. 
D) None of the above is correct.

Question 19

The long-run aggregate supply curve will shift leftward when

Accepted Answer

A) consumption spending, investment spending, government purchases, or net exports decrease. 
B) price expectations are revised upward. 
C) actual prices in the economy as a whole increase. 
D) the economy's natural output level falls. 
A) consumption spending, investment spending, government purchases, or net exports decrease. 
B) price expectations are revised upward. 
C) actual prices in the economy as a whole increase. 
D) the economy's natural output level falls.

Question 20

Starting from long-run equilibrium, an increase in aggregate demand will cause an increase in which of the following?

Accepted Answer

A) the price level 
B) expectations 
C) real wages 
D) unemployment 
A) the price level 
B) expectations 
C) real wages 
D) unemployment

Exam 22: Aggregate Demand and Aggregate Supply

One reason demand curves for individual products are downward sloping is because of the

Which of the following is likely to lead to a decrease in aggregate demand?

With short-run aggregate supply,

Which of the following phrases is most closely associated with investment demand?

In a case of demand-pull inflation,

A rise in aggregate demand causes which of the following?

Which of the following statements best characterizes the original tradeoff discovered by W. Phillips in 1957?

Which of the following is likely to lead to a decrease in aggregate demand?

The difference between nominal and real GDP is which of the following?

The two factors that make up nominal GDP are which of the following?

The Phillips Curve shows a tradeoff between

Which of these are excluded from the aggregate expenditures of the government sector?

An increase in aggregate demand will initially tend to lead firms to

A drop in aggregate demand causes which of the following?

Monetary and fiscal policy

Changes in the domestic price level cause consumers to purchase more of relatively cheaper foreign goods or less of relatively more expensive foreign goods. This effect is called which of the following?

Sustained increases in the overall price level due to high levels of aggregate demand are called which of the following?

Which of the following phrases best explains the slope of the long-run aggregate supply curve?

The long-run aggregate supply curve will shift leftward when

Starting from long-run equilibrium, an increase in aggregate demand will cause an increase in which of the following?

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

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